April 25, 2017
If the entire world only produces 880,000,000 ounces of silver per year...and if 75% of that silver is consumed through the production of cell phones, solar panels and other items...then how do The Banks manage price off of the remaining 220,000,000 ounces? The answer: Alchemy.
Look, you likely already know how The Bullion Banks alchemize gold in order to control price. After the failure of the US to manage price in the 1950s and the failure of The London Gold Pool in the 1960s, the alchemy of paper/digital "gold" was formalized with the creation of Comex gold futures in 1975. If you need a refresher, perhaps you should take a moment and read this: https://www.tfmetalsreport.com/blog/8075/42-years-fractional-reserve-alchemy
Today, we want to focus upon how The Banks and The Comex alchemize silver. Like the alchemy of gold, the alchemy of paper/digital silver is also done to manage and control price. However, where the gold price is managed in order to prop up and sustain confidence in the fiat currency system, the alchemy of silver is primarily done for profit. And which parties profit?
- The Banks which manage, manipulate and control price through the brute force of sheer market domination.
- Manufacturers who use silver as a key input in their products. For examples, check the list found here: http://www.silverusersassociation.org
If someone is profiting in this process, then it follows that someone is also losing. And who are the losers?
- Mining companies, their shareholders and their employees.
- Any and all investors and traders of physical silver.
So, with all that in mind, let's take a look at how The Banks alchemize "silver" for investment demand.
As with just about anything, and as we wrote here (https://www.tfmetalsreport.com/blog/8252/econ-101-silver-market-manipulation), much of this can be explained through the lessons of Econ 101. Where supply meets demand is where you discover price. If demand outstrips supply, price is forced to rise. Conversely, if supply increases faster than demand, prices fall.
Applying this lesson to silver...If industrial production annually consumes about 3/4 of mine supply, leaving just 220,000,000 ounces per year for investment, then the shifting demand for that 220,000,000 ounces would largely determine price. In years where investment demand rose, leading to a shortfall in supply, prices would rise. In years where investment demand fell, leading to a surplus in supply, prices would fall.
And now we've come to the crux of the matter. How do Banks manage price for themselves and the manufacturers when the supply of actual, physical silver is so incredibly tight? The answer, again, is alchemy. The Banks create all forms of virtual/paper "silver" and then convince the investment world that it's a proxy for the real thing. Whether through the creation of shares in the SLV and other ETFs or the creation of futures contracts on The Comex, these forms of digital silver take the place of actual, physical silver and are used to meet the investment demand that exceeds the supply of real, physical silver.
For today, let's just focus upon how The Comex functions in this process. Again, in numbers that are approximations, the world annually produces about 880,000,000 ounces of physical silver per year. This leaves only about 220,000,000 ounces to satisfy investment demand after industrial demands consume up to 660,000,000 ounces per year. How do The Banks on The Comex manage this investment demand? Through the unfettered creation of paper derivative contracts which are fed to speculators and traders who seek silver "exposure" through investment.
Note the chart below and pay particular attention to the bubbles showing total Comex silver contract open interest at certain dates since late last year.
This post is not intended to describe again how price is effected by the daily creation of open interest. Instead, note the volume of the contract creation since the first of the year.
In the lower left, note that total Comex silver open interest was 163,812 contracts on January 3, 2017. At 5,000 ounces per contract, this represents a total of Comex obligation of 819,060,000 ounces of digital silver. Compare that to the CME Silver Stocks report of that same date. Note that the total Comex vault supply of silver was 181,903,038 ounces with 28,050,481 ounces listed as "registered".
Now take a look at the upper left of that chart back up above. Do you see that, as of last Friday, total Comex silver open interest had grown to a new ALLTIME high of 234,558 contracts?
Let's do the math, shall we? Again, with each Comex contract representing an eventual obligation to take or make delivery of 5,000 ounces of silver, 234,558 contracts equates to a total digital supply of 1,172,790,000 ounces of "silver".
Deciphering how much virtual/paper/digital silver has been created thus far in 2017 in order to meet investment demand is pretty simple:
Friday, April 21 paper supply: 1,172,790,000 ounces
Tuesday, January 3 paper supply: 819,060,000 ounces
DIFFERENCE: 353,730,000 ounces
So, how is it that price is only up 12% year-to-date? Supply and demand. But not supply of simply physical metal. Instead, this is about the supply of digital metal or "exposure" and how this bank-created product is foisted upon the masses as a substitute for the real thing.
How do The Banks and Silver Users solve the problem of supply and demand? Well, if the world only has 225,000,000 ounces of silver each year available for investment demand, then you simply create virtual/paper/digital silver in enough supply to soak up the excess demand. And so far this year, The Banks have created over 350,000,000 ounces for this purpose.
Oh, and in case you're wondering, has the amount of silver held on deposit at The Comex grown over this same time period? I mean, to be fair, you would think that it should, right? Well see below. Note that as of last Friday, the same date as the latest open interest alltime high, total silver in the Comex vaults was still just 195,505,395 ounces of which 30,532,200 was listed as registered.
We've often described The Comex Pricing Scheme as a fraud and a scam and you can once again see why in the data above. While total, potential delivery obligations have grown by 353,730,000 ounces, total silver in the vaults has grown by just 13,602,357 ounces. That's leverage of 26:1. But, obviously, not ALL of the Comex silver is for sale. If we look at just the supply of "registered" silver, we see that it has only grown by 2,481,719 ounces over the same time period. The leverage of this silver versus total open interest is 142:1.
Anyway, we'll write about that again some other day. In the meantime, what is the point/objective of this post?
Simply...You need to realize and understand how this works. The price of physical silver is determined NOT through the trading of actual silver. Instead, paper derivative contracts that act as proxies or substitutes for physical silver make up the vast majority of the transactions and, as long as the investment world continues to accept these worthless paper obligations and the scheme through which the price is discovered, the fraud will continue.
All parties interested in fair pricing MUST reject The Bankers and their scheme:
- Investors must demand physical metal. NOT paper derivatives, NOT unallocated accounts and NOT shares of ETFs.
- Mining companies must demand delivery into a physical exchange for their product and move their business away from the hyper-leveraged paper exchanges.
- Traders must recognize that The Banks are using their ignorance against them. Every trader that believes in "free and fair markets" in nothing but the proverbial fool who is soon to be separated from his cash.
Only when the world demands physical delivery for their silver investments will The Bankers' schemes finally fail. Only then will true and fair price discovery finally be made.